David Prosser: Reform the tax system and deliver a decent pension for all
Saturday 05 March 2005
Devastating new research from Datamonitor could be the final nail in the coffin for the Government's ailing pensions policy.
Devastating new research from Datamonitor could be the final nail in the coffin for the Government's ailing pensions policy. The market analyst says stakeholder pensions, launched four years ago as the solution to the country's savings crisis, have comprehensively failed.
After a strong start in the year the Government launched stakeholder pensions, sales have fallen dramatically. The number of plans sold dropped by 6 per cent a year between 2002 and the end of last year. During a period when financial experts have repeatedly warned that people are not saving enough for old age, sales of the Government's flagship pension product have collapsed.
We shouldn't be surprised by this disaster. Stakeholder plans appealed to savers who were already contributing to pensions, because they were a low-cost version of older products. But they did nothing to address the fundamental reasons why people aren't saving enough.
One problem is that many people just do not have enough spare cash to save for the future. This group includes many younger workers, who are often earning low salaries or struggling to repay student loans. Women are also over-represented in the "can't afford to save" category.
There is an even larger group of people who can only afford to put by relatively small sums. These savers face another huge problem: the ridiculous complexity of pensions, especially the interaction between the state and private-sector systems.
Currently, the state pension rules mean modest savers lose out. While poorer pensioners are entitled to claim the means-tested pension credit, by saving for old age, they disqualify themselves from this cash. So, unless you're confident of comfortably putting by more than you would get from the pension credit, you might as well not bother.
Without reform of the state system, there is little hope of any improvement in private pension saving. It's therefore encouraging that Tony Blair this week backed the idea of an automatic state pension paid to everyone over a certain age - pensioners would qualify through a basic residency test, irrespective of the National Insurance contributions they had made. Less happily, he quickly pointed out that a universal pension would cost several billion pounds more than the current set-up. He warned the cost could be prohibitive.
There is one obvious way to pay for more generous state pensions. The tax reliefs available to savers who pay into private pensions cost the Treasury a staggering £19 billion a year. The money is meant to be an incentive to save, yet the vast majority of those who contribute to private pensions would be providing for their old age even without these tax breaks. Perversely, higher-rate taxpayers - who need the least help to save - get the most generous tax breaks.
There is nothing to stop us reallocating some of the cash currently being wasted on pension tax relief. It could be used to underpin a universal pension generous enough to enable us to do away with means-tested benefits for pensioners.
The transformation would be remarkable. Everyone could look forward to a decent basic income in old age - including those who can't afford to save for a pension. Those who could afford to put by extra would do even better, free from anxiety about losing access to complicated means-tested benefits.
* Car dealers' reputation as sharks may not be entirely deserved, but there's no doubt that they charge way over the odds for finance. Yet two-fifths of car-buyers still take the loan on offer at the showroom.
Analyst MoneySupermarket cites the cost of buying a Ford Mondeo. Drive away with Ford's own finance package, costing 15.1 per cent a year, and your new wheelscost £22,500. Buy with a cheap personal loan, at about 6 per cent, and you pay £20,200, saving more than £2,000.
Car-buyers think long and hard about a new vehicle, but then sign up in an instant when they're offered an expensive finance package. If you plan to buy a new motor, now that March's 05 plates are available, sort out a cheap loan before you set off for a test drive.
Do your homework to beat the banks
Britain's biggest banks have been quick to point out that a large chunk of their mammoth profits is made outside of this country. Of HSBC's £9.2bn profit unveiled on Monday, for example, only £2.6bn was generated here.
Even so, there's no getting away from the fact that the banks are doing very nicely out of us all. But while it's right to get cross when this exploitation is exposed, we often have only ourselves to blame.
For example, despite a two-year campaign from Which? to persuade people to switch current account, the biggest banks retain 70 per cent of the market. Similarly, Barclaycard remains dominant in the credit card sector, despite rarely offering the best deal. Too many of us automatically troop down to our local big bank, whatever our financial need.
Maybe a lack of financial savvy is to blame. On-line bank Egg has been testing the nation's financial IQ with relatively simple questions about interest rates and inflation. The average Briton scores a pretty dismal 56, out of a possible 120.
You can sit the test for yourself online at www.financial-iq.co.uk. Use the results to identify your weak spots and then do some homework.
It's your only option. The big banks may not enjoy being criticised for profiteering, but they won't be shamed into action.
The only effective way to force them to offer a better deal is to take your business elsewhere. And that means knowing how to work out when you are being ripped off.
- 1 Russell Brand accuses FOX News anchor Sean Hannity of terrorism after aggressive Israel-Gaza debate
- 2 Pope Francis issues top 10 tips for happiness – including don’t try to convert other people
- 3 Arturo Vidal to Manchester United: Midfielder set to force through move to Louis van Gaal's Red Devils - reports
- 4 Disney heiress Abigail disowns her share of family profits in West Bank company
- 5 Israel's propaganda machine is finally starting to misfire
The secret report that helps Israel hide facts
Land for gas: Merkel and Putin discussed secret deal could end Ukraine crisis
Woman and two children killed by mob in riots over 'blasphemous' Facebook post in Pakistan
Richard Dawkins tweets: 'Date rape is bad, stranger rape is worse'
Putin is 'thuggish, dishonest and reckless', says British ambassador to US
Boozy, ignorant, intolerant, but very polite – Britain as others see us
- < Previous
- Next >
iJobs Money & Business
£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...
£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...
Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...
£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...
Day In a Page
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000